The resilient character of PDO/PGI products in dynamic food markets Filippo Arfini1, Maria Giacinta Capelli2 1 Department of Economics, University of Parma, Parma, Italy, e-mail: [email protected] 2 INEA - National Institute of Agricultural Economics, Rome, Italy, e-mail: [email protected] Paper prepared for presentation at the 113th EAAE Seminar “A resilient European food industry and food chain in a challenging world”, Chania, Crete, Greece, date as in: September 3 - 6, 2009 Copyright 2009 by [Filippo Arfini1, Maria Giacinta Capelli2]. All rights reserved. Readers may make verbatim copies of this document for non-commercial purposes by any means, provided that this copyright notice appears on all such copies. 1 The resilient character of PDO/PGI products in dynamic food markets Filippo Arfini1, Maria Giacinta Capelli2 1 Department of Economics, University of Parma, Parma, Italy, e-mail: [email protected] 2 INEA - National Institute of Agricultural Economics, Rome, Italy, e-mail: [email protected] Abstract. The European and Italian food system is experiencing a change in the relationship with the consumer and with the distribution. In fact, customers are increasingly demanding, and are attracted, by products that have high quality content and a strong link with the territory. The brands with the price are the two factors affecting the strategic policies of the food producer firms. At the same time, the retail system has proven to be very sensitive to consumer demands by providing quality products at competitive prices and using their brand as an element of loyalty. In the European context, the Italian agri-food system has the higher number of products with the Protected Designation of Origin (PDO) and Protected Geographical Indication (PGI) recognition. However, 90% of PDO products are represented by only 15 Designations. This figure shows how different types of products find a much diversified business position in relation to the firm’s characteristics, to the markets characteristics, to the reputation of the Designation and to the consortium strategies in relation to their commercialization. The objective of this research, based on observed data collected through the survey of QUALIVITA Association, is to provide an exhaustive picture of the economic characteristics of the Italian PDO, PGI Designations and define a typology of such Designation according different set of variables as production system, reputation level, role of the territory and distribution channel. The ultimate goal is to determine the strategic levers taken at the marketing stage and to identify which factors clarify their potentiality on the market. The methodology adopted for the quantitative analysis is based on non-hierarchical cluster analysis by the method of k-mean in order to identify clusters of similar designations which explain what variables act on the various strategies adopted and on the related development processes. Keywords: PDO/PGI, quality, modern distribution, cluster analysis, marketing strategies, development processes. 1. Introduction Italy is one of the European countries which has always supported a policy of recognition and institutionalisation of Designations of origin for food products. This is because of the important gastronomic traditions in all regions of the Country, as well as the presence of some of the most famous (and widely imitated) Designations of the world, such as Parmigiano Reggiano cheese and Prosciutto di Parma ham, have always push in the direction of a quality policy for food products The purpose of developing a quality policy based on the use of PDOs and PGIs was, and remains, that of extending the supply of food products to consumers but, even more important, that of providing a better economic return to producers, often of small and medium dimensions, laying the foundations for the virtuous economic development of rural areas (Belletti et others 2003; Belletti and Marescotti, 2006). This concept highlights the capacity of producers to interact directly with the market and profit from the quality of their products without having to resort to public subsidies to support the companies and the economy of the territory. The development strategy based on the use of Geographical Indications (GI) does, however, present a difficulty, represented by the capacity of the companies to develop an action of governance with the power to help them obtain remunerative prices on the prevalent market. In this regard, many GIs find their commercial positioning in large scale distribution, but many others have great difficulty in relating with this trade channel, preferring the direct sales or traditional distribution channels. These latter channels, in fact, taking advantage of a domestic convention (Marescotti, 2000) succeed in offering consumers better information so as to guarantee a better economic return to producers. The choice of distribution channel is therefore a central factor in the search for a sales strategy capable of 2 combining quality, price and communication capacity. It is no mystery that relations with large scale distribution, especially for PDO and PGI products which present low production volumes and low turnovers, are particularly problematic. This is due to the cost of access to the sales point and the difficulties encountered in meeting logistics requirements, service requirements, but above all, the request for information that justifies a quality/price ratio judged to be satisfactory by consumers. Indeed, in order to improve communication initiatives directed at consumers, in addition to the well- known Community logos, companies resort to the use of quality marks that are often identified with collective trademarks – of the consortia that represent them – or with company logos. The latter have the duty to guide the consumer at the moment of purchase helping bridge the information gap as regards the quality of the products which, let’s not forget, for this category of products and for many consumers is seen as a credence attribute. Clearly, the reputation of the Geographical Indication is nourished by the quality of the products that the companies develop, but quality is not just the result of a precise corporate choice; it also depends on the collective strategy that the companies adhering to the GI have adopted and defined through the production specification tool (Sylvander and Barjolle, 2000). It is no coincidence that Reg. 510/06 allocates the task of defining production specifications to the producers’ Association, leaving producers free to choose the link with the territory and the quality level that best allows the development of the most suitable sales strategy for the characteristics of the reference market. Quality, commercial strategies and governance could be considered key factors for understanding the efficacy of each designation on the market. It therefore becomes important to understand the “positioning” of the individual Italian Designations with respect to the main factors that distinguish their strategies in order to assess whether the management tools and policies of the designations that have been developed are efficacious for the pursuit of the objectives that the quality policy developed through the GIs set itself to achieve. The objective of this research, is twofold; the first objective is to provide an exhaustive picture of the economic characteristics of the Italian PDO PGI designations, while the second is to define a typology of such Designation according different set of variables than can explain the strategy of each designation and clarify their potentiality on the market. This paper is divided into two sections. The first section presents the main features of the designation system in Italy as regards aspects relative to the relationship with the territory, the numerousness of the companies involved, the characteristics of the collective structures, the turnover and relations with large scale distribution. The second part provides a typological analysis of the designations present in Italy together with a number of considerations on the policies developed till now. 2. The spread of geographical designations in Europe In Europe, in September 2008 as many as 812 PDO and PGI products were officially recognised (Table 1), referring to a wide range of commodities in which, however, two categories (fruit and vegetable products and cheeses) represent 50 percent of the designations. In any case, the registration of productions with geographical designations shows considerable territorial disparity between Northern and Southern Europe, the Countries in the Mediterranean area being at a clear advantage, both for the number of products and for the variety of the productions. In fact, almost 80 percent of the European designations are concentrated in five European Countries (Italy, France, Spain, Portugal and Greece). The reason for this is undoubtedly linked to the distinctive cultural and gastronomic history of these Countries, which has contributed to keeping alive, within the rural areas, gastronomic traditions and small and medium- sized enterprises, often craft enterprises, that represent the productive framework of the European Geographical Designation system. To the number of designations registered in Europe in the Community register of geographical indications in September 2008, the 41 applications awaiting the completion of the final formal step prior to registration must be added, while a further 282 applications are in the preliminary investigation